Saving the farm from paying nursing home bills

My in-laws, who are in their 80’s, have been happily married since the dawn of time. My father-in-law is now very ill and is being taking care of at home. This may not last long, as his health worsens; he may need to go to a nursing home. Meanwhile, my mother-in-law has always wanted to leave her grandchildren money for college. To protect money from going to pay nursing home bills, she is considering divorcing her husband. (He does not have long term care insurance.) Is she right?

On Not So Golden Pond

Dear Not So Golden,

She is right to some extent. She is right that she would have more money by divorcing, if she and Dad have more than $227,000 in assets. Otherwise, she will come out almost the same whether they stay married or divorce.

Let’s look at the Stay Married Scenario first. Assuming dear old Dad goes into a nursing home, he will have to reach a certain level of poverty before Medicaid will pay for his care. He will be expected to spend his half of their assets. Your mother-in-law will be allowed to keep her half of the assets, plus the home she lives in, a car, a burial plot, and prepaid, nonrefundable funeral costs. However, she is only allowed to keep up to around $113,000 in assets (this figure varies slightly by state) plus the home she lives in. She would also be allowed up to $2,800 per month in income; anything over that would go to his nursing home costs.

Now the Divorce Scenario. In many divorces, each partner leaves with half of the joint assets. If your in-laws have $227,000 or less in assets, then your mother-in-law won’t come out “ahead” by divorcing: that’s how much Medicaid would have allowed her to keep. If they have more assets and/or she gets more than half of what they do have from the divorce, then she might have more to leave her grandchildren by divorcing him. Also, her monthly income would not be hemmed in to the $2,800 per month.

There are other factors to consider in the Divorce Scenario. As the ex-spouse, she would not have a right to make any medical decisions for him or to be consulted by his care givers. She would have to get written permission to participate in his care and get his health information.

If he has any life insurance, he should have it paid to his children and not to her. (For obvious reasons, life insurers do not like to have ex-spouses benefit from the person’s death.)

The divorce will have many other financial ripple effects. For example, it may affect what she receives for Social Security benefits. She could consult a financial planner to find out what all the implications are for her situation.

And there are simpler ways to leave money to the grandchildren for college. She could give them college savings accounts, which would make less money available to the nursing home. She can give up to $13,000 to each grandchild every year as a gift. With a little extra leg work, she can deposit $65,000 up front and have it treated as if it had been made over a five-year period; a tax expert or financial planner could help her do this. This money would then not be considered to be an asset for paying nursing home bills. Unless she had it in mind to leave them a lot more money, this might be the simplest solution.

Special thanks to Kerry Peabody, CSA, CLTC at Clark Insurance for helping with this post!